Reportedly, the Government warns to impose tax on all cash deposits above 2.5 lakhs with 200% penalty in case of income mismatch.Any mismatch with income declared by the account holder will be treated as mismatch.
Following the scrapping of rs. 500 and Rs. 1000 currency notes, the Government has allowed the citizens to exchange their old notes to deposit in their bank accounts between 10th November to 30th December.
“The (tax) department would do matching of this with income returns filed by the depositors. And suitable action may follow. This would be treated as a case of tax evasion and the tax amount plus a penalty of 200 per cent of the tax payable would be levied as per the Section 270(A) of the Income Tax Act, said revenue secretary Hashmukh Adhia.
Small businessmen, housewives, artisans and workers who had some cash lying as their savings at home should not be worried about any tax department scrutiny.
People who are resorting to buying jewellery are also under the net. PAN will be mandatory for purchasing jewellery. Jewelers who fail to obtain PAN details from the buyers will have to face actions from the Government.
“We are issuing instructions to the field authorities to check with all the jewellers to ensure this requirement is not compromised.Action will be taken against those jewellers who fail to take PAN numbers from such buyers. When the cash deposits of the jewellers would be scrutinised against the sales made, whether they have taken the PAN number of the buyer or not will also be checked,” he added.
Indirect Tax Collections up to October, 2016 register an increase of 26.7% over the net collections for the corresponding period last year; Net Indirect Collections stood at Rs.4.85 lakh crore; 62.4% of the Budget Estimates of Indirect taxes for FY 2016-17 has been achieved till October, 2016.
The figures for indirect tax collections (Central Excise, Service Tax and Customs) up to October 2016 show that net revenue collections are at Rs 4.85 lakh crore which is 26.7% more than the net collections for the corresponding period last year. Till October 2016, 62.4% of the Budget Estimates of indirect taxes for Financial Year 2016-17 has been achieved.
As regards Central Excise, net tax collections stood at Rs.2.14 lakh crore during April-October, 2016 as compared to Rs.1.47 lakh crore during the corresponding period in the previous Financial Year, thereby registering a growth of 45.4%.
Net Tax collections on account of Service Tax during April-October, 2016 stood at Rs. 1.43 lakh crore as compared to Rs.1.12 lakh crore during the corresponding period in the previous Financial Year, thereby registering a growth of 26.9%.
Net Tax collections on account of Customs during April-October 2016 stood at Rs. 1.27 lakh crore as compared to Rs. 1.22 lakh crore during the same period in the previous Financial Year, thereby registering a growth of 4.1%.
Direct Tax Collections up to October, 2016 show an increase of 10.6%; Net Direct Collections stood at Rs.3.77 lakh crore;44.5% of the Budget Estimates of direct taxes for FY 2016-17 has been achieved.
The figures for Direct Tax Collections up to October, 2016 show that net collections are at Rs.3.77 lakh crore which is 10.6% more than the net collections for the corresponding period last year. Till October, 2016, 44.5% of the Budget Estimates of direct taxes for FY 2016-17 has been achieved.
As regards the growth rates for Corporate Income Tax (CIT) and Personal Income Tax (PIT), in terms of gross revenue collections, the growth rate under CIT is 11.6% while that under PIT (including STT etc.) is 18.6%. However, after adjusting for refunds, the net growth in CIT collections is 5.0% while that in PIT collections is 18.4%. Refunds amounting to Rs.93,836 crore have been issued during April-October, 2016, which is 32.2% higher than the refunds issued during the corresponding period last year.
Protocol amending the DTAC aims to promote transparency and cooperation between the two countries.
A Protocol amending the Double Taxation Avoidance Convention (DTAC) between India and Japan for the Avoidance of Double Taxation and the Prevention of Fiscal evasion with respect to taxes on income which was signed on 11th December, 2015 has entered into force on 29th October, 2016 on completion of procedural requirements by both countries. The Protocol amending the DTAC aims to promote transparency and cooperation between the two countries.
The Protocol provides for internationally accepted standards for effective exchange of information on tax matters including bank information and information without domestic tax interest. It is further provided that the information received from Japan in respect of a resident of India can be shared with other law enforcement agencies with authorization of the Competent Authority of Japan and vice versa.
The Protocol provides for exemption of interest income from taxation in the source country with respect to debt-claims insured by the Government/Government owned financial institutions.
The Protocol inserts a new article on assistance in collection of taxes. India and Japan shall now lend assistance to each other in the collection of revenue claims.
The existing Double Taxation Avoidance Convention (DTAC) between India and Japan was earlier signed on 7th March, 1989 and was notified on 1st March 1990. The DTAC was subsequently amended on 24th February, 2006.
In a recent decision, the two-judge bench of the Supreme Court held that the sale of branded goods among a Holding Company and a subsidiary Company do not constitute “first sale” within the meaning of section 5(2) of the Kerala General Sales Tax Act, 1963 since the same is sale among the same brand owners. Therefore, the sale of branded goods by a subsidiary company to the market will be treated as “first sale” and consequently, will attract tax liability u/s 5(2) of the Act.The decision was on an appeal filed by the KAIL against the order of the Kerala High Court in which it was held thatthe appellants are the brand name holder of “Sansui” and therefore the sales made by them are liable to be assessed u/s 5(2) of the Act.
The assessing authority, in the instant case, completed assessment against the appellant-Company by invoking s. 5(2) of the KVAT Act finding that they had sold the home appliances under the brand name “Sansui”. The Officer found that the appellant is the brand name holder of “Sansui” and hence the turnoverof the items sold under “Sansui” brand name will be treated asfirst sale under Section 5(2) of the KGST Act.Though the first appellate authority confirmed the assessment order, the Appellate Tribunal set aside the same. However, on a revision petition preferred by the State, theHigh Court reversed the decision of the Tribunal by observing that the appellant comes within the ambit of section 5(2) and confirmed the addition made by the assessing officer.
The Court noticed that the sale by the brand name holder or the trade mark holder shall be the first sale for the purposes of the KGST Act, if it satisfies three conditions such as, (i) sale of manufactured goods other than tea, (ii) sale of the said goods is under a trade mark or brand name; and (iii) the sale is by the brand name holder or the trademark holder within the State.
“Applying the aforementioned conditions to the facts of the present case, it is an admitted fact that the goods sold by the appellant-Company are manufactured goods other than tea. The first condition is satisfied. The next condition to be satisfied is that the sale of goods is under a trade mark or brand name. It is an undisputed fact that the manufactured goods sold by the appellant-Company were home appliances under the brand name “Sansui”. Thus the second condition is also satisfied. Now the last condition to be satisfied in order to attract section 5(2) of the KGST Act is that the sale is by the brand name holder or trade mark holder within the State andwhether the appellant-Company is a holder of the brand name “SANSUI”.”
Regarding the third condition, it was pointed out that the appellant-Company also satisfies the same since it is a subsidiary of M/s Videocon International Ltd and hence, is also allowed to use the brand name SANSUI.
The Court emphasized that when a product is marketed under a brand name, the Assessing Authority is entitled to assume that the sale is by the holder of the brand name or by a person, who is entitled to use the brand name in India. “Apart from this, in this case, the marketing is actually done by fully owned subsidiary and/or a group company of the holding company, which was allowed to use the brand name “Sansui”.”
“Brand name has no relevance when the products are manufactured and sold in bulk by the holding company to its subsidiary company for marketing. However, the brand name assumes significance when goods are marketed with publicity in the market. Moreover, when the goods are sold under the brand name, necessarily, it has to assume that the marketing company is the holder of the brand name or has the right to market the products in the brand name because, it is the first company introducing the products in the market. The objective of Sec 5(2) of KGST Act is to assess the sale of branded goods by the brand name holder to the market and the inter se sale between the brand name holders is not intended to be covered by Sec. 5(2) of the KGST Act.”
“However, if the sale between the holding company and the subsidiary company, both having the right to use the same brand name, is at realistic price and the marketing company namely, the appellant-Company charged only usual margins in the trade, then there is no scope for ignoring the first sale,particularly, when the first seller was also the holder of the brand name and was free to market the products in the brand name. However, the evidence on record shows that the margin charged by the appellant-Company while making the further sale of product is unusually high. So the inter se sale between the groups of companies under the control of the same family was only to reduce tax liability and was rightly ignored by the assessing officer by levying tax under Section 5(2) of the KGST Act.”
In view of the above, the Court upheld the order of the High Court finding that the appellant-Company is the brand name holder of “Sansui” and therefore attracts tax liability under the KGST Act.
Read the full text of the Judgment below.
Following the demonetization of Rs. 500 and Rs. 1000 notes, the Central Government directed the IT department to co-ordinate with all banks and to submit the details of individuals who effects transactions at the value of Rs. 2 lakhs.
A senior IT Department official said, “A key reason for scrapping these two currency denominations is to curb the huge menance of fake currency, tackle black money and make India a cashless economy.”
The government further directed the Department to keep record of every individual along with his/her PAN card details and tally it with the tax filing. The Department can even impose penalty up to 30 to 120 per cent upon the amount, depending on the source of income.
One of the key reasons among others lead to this shocking move must be the intense response to the Income Declaration Scheme, 2016 which was expired on September 30. The Scheme was introduced with an aim to grant a fair opportunity to the tax payers to surrender their undisclosed income by paying 45% of tax without any further liabilities or legal consequences under the provisions of Income Tax Act, Wealth Tax Act and Benami Transactions (Prohibitions) Act.
A division bench of Punjab and Haryana High Court has directed the Assessing Officer to compute the deduction under section 80 IA of the Income Tax Act by following the method in Section 80 HHC (3) for working out the profit/loss from Trading Goods.
The appeal was filed by the Commissioner of Income Tax-III, Ludhiana against the order of Income Tax Appellate Tribunal.
The assessee M/s Nahar Exports Ltd. admittedly carries on trading as well as manufacturing and export activities. Admittedly, the manufacturing activity is an eligible activity under Section 80 IA.
The AO, however came to the conclusion that the sale price is not verifiable. In view thereof, he observed that the assessee’s claim that it had incurred a loss qua its trading activities was not acceptable. He came to the conclusion that the profit earned by the assessee’s eligible unit was not only on account of its manufacturing activities but also from its trading activities.
The AO then proceeds to observe that the assessee had not maintained separate books of accounts for these two activities and that the ratio of turnover is also not known. It is therefore, observed that the only way out is to split the profit on the basis of the ratio of expenses on purchases and direct expenses of the two activities.
The AO found that the total cost of material and other direct expenses was about Rs. 142.46 crores as against which the total cost of traded goods was Rs. 22.47 crores. The AO directed that while computing the deduction under Section 80 IA, 1/ 7th of the profits would be excluded from the total profit.
The CIT (A) on the other hand noted that the computation of the loss in respect of the trading activities was filed by the assessee by its letter dated 20.10.2000. The CIT(A) accepted the assessee’s contention that the AO had ignored the amount of loss computed by the company without any basis or evidence and reduced the same from the profits of the industrial undertaking. The CIT(A) also accepted the contention that the AO had estimated the profits on mere guess work and that there would be no justification for applying a different yardstick and method for computing the results of the trading activities while dealing with claims under Sections 80 IA and 80 HHC. In other words the finding of the CIT(A) is that the AO having accepted, on the basis of the assessee’s books of account, that there was a loss in respect of the trading activities while dealing with the case under Section 80 HHC could not come to a contrary conclusion while dealing with the claim under Section 80 IA. The loss in the trading activities is still a loss.
The First bench of Punjab and Haryana High Court comprising of Chief Justice S.J Vazifdar and Justice Darshan Singh has upheld the findings of ITAT and CIT and observed that, the Tribunal rightly remanded the issue to the AO to recalculate the deductions under Section 80 IA of the Income Tax Act.
Read the full text of the Judgment below.
In a recent decision, the CESTAT, delhi bench ruled that CENVAT Credit on Service Tax paid towards GTA services availed for transportation of cement from factory gate to their customers premises.
The appellant-assessee, in the instant case, is engaged in the manufacture of cement. They are availing cenvat credit of duty paid on inputs and input services.The sole issue raised by the appellant before the Tribunal is that whether they are eligible to credit of service tax paid on GTA services availed for transportation of cement from factory gate to their customers premises.
The lower authorities denied the cenvat credit to the appellant by observing that no credit on such GTA service is available to the appellants since the place of removal is factory gate.
The Tribunal noted that the cement is supplied at the premises of the customers and the freight is arranged and paid by the appellants.
It was further pointed out that the Tribunal, in the own case of the assessee has allowed the same by holding that when sales by the assessee were on FOR they legitimately availed cenvat credit on the service tax paid on the freight charges, borne for its FOR sales. Accordingly, the impugned order was quashed.
Read the full text of the order below.
In a recent ruling, the Delhi CESTAT observed that penalty is not leviable on a Government authority who defaulted payment of service tax without any malafide intention to evade tax.
In the instant case, the appellant-assessee, a Government Society established by the Chhattisgarh Government engaged in the activity of assisting the farmers in procuring their produce under minimum retail price and assisting the farmers for sale of their produce. The Revenue passed order observing that the assessee is liable to pay service tax on the GTA service so received by them. Accordingly, penalty was imposed on them under the Finance Act, 1994.
The Appellate Tribunal found that that as per the Clarification issued by the Board, the appellant, who were performing their statutory duties, was under a the bonafide belief that they were not liable to Service Tax.
“In the absence of any evidence to reflect upon any positive suppression or mis-statement with an intent to evade payment of duty longer period of limitation would not be available to the Revenue.”
The Single Member noticed that, Tribunal in the case of Surat Municipal Corpn. Vs. CCE, Surat has observed that the Society being a statutory Govt. body, there cannot be any malafide intention to evade payment of Service Tax. The same appears to be a cause of omission on the part of the appellant, thus justifying invocation of provisions of Section 80. Inasmuch as the appellant was under a bonafide belief that being a statutory Government body, they are not liable to any service tax, penalties imposed upon them were set aside.
On the basis of the above findings, the order of penalty was deleted.
Read the full text of the order below.
Recently, the division bench of the Delhi High Court dismissed the petition preferred by the DIAL impugning the regulation 6(1)(1) of the Handling of Cargo in Customs Areas Regulations, 2009.
The petitioners, in the instant case, entered into an agreement with the All India Airport Authority as per which, they were granted with exclusive right and authority for performing the functions of operating, maintaining, developing, designing, constructing, upgrading, modernizing, financing and managing of the Indira Gandhi International Airport, New Delhi. Consequently, they were empowered under the provisions of the agreement to exercise powers under Section 12A(4) of the AAI Act to exercise AAI’s statutory powers under the Regulations framed in 2003, with regard to levy of demurrages charges at the IGI Airport.The petitioners challenged the Regulation 6(1)(1) of the Handling of Cargo in Customs Areas Regulations, 2009 as ultra-vires the provisions of Customs Act.
Thereafter, he petitioner executed a Concession Agreement with Celibi Delhi Cargo Terminal Management India Pvt. Ltd, which enabled it to upgrade, modernize, finance, operate, maintain and manage the cargo terminal at IGI Airport. Thereafter, the Commissioner of Customs, on the basis of the impugned regulation, started issuing directions to DIAL and Celibi, to waive demurrage charges. These directions were not complied with; consequently the third respondent issued show cause notices as to why the impugned regulations were not complied with and as to why action should not be initiated against the petitioner and Celibi.
The petitioners submitted that the demurrage is charged under the provisions of AAI Act and that the impugned regulation framed under the Customs Act cannot be extended so as to waive the demurrage charged under the AAI Act.
The Court refused to accept the contention that the impugned regulation violates the right to equality guaranteed under Art. 14 of the Constitution. It was observed that “The contention that the impugned regulation violates Article 14 of the Constitution of India, as it has no nexus with the object sought to be achieved, is insubstantial because the cargo regulations were enacted for the purpose of prescribing the responsibilities of persons engaged in theactivities of receiving, storing, delivering, dispatching or otherwise handling of imported or export goods in a customs area, and the impugned regulation is as such an obligation cast upon the persons involved in the said activities. DIAL also urged that the regulations contravene Article 19(1)(g) inasmuch as it places a blanket ban on the charge of demurrage by the custodian of goods in case of detention, confiscation or seizure of goods by customs. However, such restriction is covered under the premise of Article 19 (6), by which reasonable restrictions in the interest of general public may be imposed on the right under Article 19(1)(g). Investigation being an integral part of working of the Customs Department, the consignments detained by the customs authorities or other investigating agencies, cannot be cleared during investigation particularly if such cases involve trade policy, human safety and security, security of state etc. It is with these considerations that the impugned regulation was included in the Cargo Regulations and it should be viewed in the light of the object with which it has been framed. To this extent, the court is in agreement with the third respondent. Therefore, the allegation that the impugned regulation violates Article 19(1)(g) does not survive.”
The Court held that “Cargo Regulations is well within the scope and ambit of its parent Act i.e the Customs Act, and is also consistent with the same, and does not, in any way, violate constitutional provisions.”
While dismissing the petition, the division bench opined that if the petitioners were of the view that the direction by the customs authorities not to charge demurrage was “unwarranted”, it could seek guidance from the central government. “In these circumstances, the grievance that Regulation 6can potentially render DIAL’s functioning unviable and result in losses to it, has to fail.”
Read the full text of the Judgment below.
Recently, the Central Board of Direct Taxes (CBDT) clarified that the compensation received in respect of acquisition of both agricultural and non-agricultural land are exempted from Income Tax.
Normally, the agricultural land is not a “capital asset” for the purpose of income tax and the capital gain arising out of the transfer of such land is exempted from income tax under section 10(37) of the Income Tax Act subject to the conditions specified.
In the year 2013, the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act was enacted. Section 96 of the Act prohibits the levy of income tax on any award or agreement made (except those made under section 46).
The insertion of the above section has created an ambiguity among the tax payers regarding the taxability of compensation received on compulsory acquisition of non-agricultural land. The section seems to be wider scope than the provisions of the Income Tax Act since it do not provide any distinction between agricultural and non-agricultural land.
It is stated that “the matter has been examined by the Board and it is hereby clarified that the compensation received in respect of award or agreement which has been exempted from levy of income tax vide section 96 of the RFCTLARR Act shall also not be taxable under the provisions of the Income Tax Act, 1961 even if there is no specific provision of exemption for such compensation in the Income Tax Act.”
Read the full text of the circular below.
The Delhi bench of the CESTAT, in a recent decision, held that the Iron & Steel stands used in the manufacture of trolleys can be treated as capital goods and therefore, the appellants are eligible for CENVAT Credit on such goods under the Excise Law.
In the instant case, the appellant-assesseeis aggrieved by the order of the assessing authority and the first appellate authority that trolleys are not capital goods and therefore of Cenvat Credit of duty paid on various iron and steel items, used for manufacture of trolleys is not allowable to the appellants.
While allowing the appeal, the Judicial Member said that “In as much as such angles, plates etc. stand used in the manufacture of trolleys which are nothing but capital goods, I am of the view that the appellant is entitled to the benefit of Cenvat Credit duty paid on the same.”
Accordingly, the Tribunal set aside the impugned orders.
Read the full text of the order below.
Today’s GST Council meeting finalised the 4-tier Tax Structure in the GST regime, in which four different tax rates are fixed for goods. The new tax rates of 5, 12, 18 and 28 per cent are finalized today. Reportedly, the lower rates will be applicable to essential goods and the luxury and de-merit goods would attract additional cess along with higher tax rates.
Initially, the essential gods including the food items would be charged with zero rate. On the other hand, higher charges with additional cess will be levied on Luxury cars, tobacco and aerated drinks.
Finance Minister Arun Jaitley, while announcing the decisions arrived at the first day of the two-day GST Council meeting, said highest tax slab will be applicable to items which are currently taxed at 30-31 per cent (excise duty plus VAT).
The Revenue from the cess and a newly introducing clean energy cess would be used for compensating states for any loss of revenue during the first five years of implementation of GST rates. It will lapse on expiry of five years.
The Centre’s proposal to levy 4% rate on gold is on hold, he said.
While allowing the second appeal filed by M/s. Hindustan Copper Ltd, the Delhi bench of the Customs, Exise and Service Tax Appellate tribunal ruled that CENVAT Credit is allowable on steel strappings used for packing the final products under the Excise law.
In the instant case, the appellant-assessee approached the CESTAT on second appeal impugning the orders of the lower authorities holding that cenvat credit is not allowable to the assessee on steel scrapers, which is used for packing materials for the final product manufactured by them.
The tribunal noticed the decision in Nilkamal Ltd. Vs. CESTAT, Chennai, in which it was held that the final products cleared along with the packing material are entitled to the benefit of credit paid on the packing materials.
Referring to the above judgment, the Tribunal pointed out that “there is no doubt in the present case that steel strappings are used for packing the final products of the appellants, in which case they would be cenvat able in view of the law declared by the Hon’ble Madras High Court.”
Read the full text of the order below.
In a recent ruling, the CESTAT, Ahmedabad Bench held that under the provisions of section 129E of the Customs Act, 1962, the amount of pre-deposit paid before the first appellate authority cannot be adjusted towards the deposit to be paid while filing appeal before the CESTAT. Consequently, the appellant will have to pay 7.5% of the entire duty/penalty payable before the first appellate authority on first appeal and a separate 10% while filing second appeal before the Tribunal.
In the instant case, the appellant impugned the order of the first appellate authority before the CESTAT. The Registry noted a defect that as the appellants have failed to deposit 10% of the duty/ penalty in terms with the amended provision of Section 129E/35F of the Customs Act,1962/ Central Excise Act,1944. At the Bar, the appellant contended that since they had deposited 7.5% at first appellate stage, before the Commissioner(Appeals), they are required to deposit the balance 2.5% and not the entire 10%. The Revenue, on the other hand, argued that such an interpretation cannot be read into the said provision without inserting words not present therein.
While accepting the contentions of the Revenue, the Tribunal observed that the amount paid under clause(i) of Sec.129E/35F at the time of filing Appeal before the first Appellate Authority cannot be adjusted against the amount of deposit required to be made for filing appeal before the Tribunal.
The division bench quoted the observation of the Bombay High Court in Greatship(India) Pvt. Ltd. Vs. Commissioner of Service Tax, Mumbai , that “It is settled position of law that in taxing statute, the Courts have to adhere to literal interpretation. At first instance, the Court is required to examine the language of the statute and make an attempt to derive its natural meaning. The Court interpreting the statute should not proceed to add the words which are not found in the statute. It is equally settled that if the person sought to be taxed comes within the letter of the law he must be taxed, however, great the hardship may appear to the judicial mind to be. On the other hand, if the Crown seeking to recover the tax, cannot bring the subject within the letter of the law, the subject is free, however apparently within the spirit of law the case might otherwise appear to be. It is further settled that an equitable construction, is not admissible in a taxing statute, where the Courts can simply adhere to the words of the statute. It is equally settled that a taxing statute is required to be strictly construed. Common sense approach, equity, logic, ethics and morality have no role to play while interpreting the taxing statute. It is equally settled that nothing is to be read in, nothing is to be implied and one is required to look fairly at the language used and nothing more and nothing less. No doubt, there are certain judgments of the Apex Court which also holds that resort to purposive construction would be permissible in certain situation. However, it has been held that the same can be done in the limited type of cases where the Court finds that the language used is so obscure which would give two different meanings, one leading to the workability of the Act and another to absurdity.”
Read the full text of the order below.
In a recent decision, the Patna High Court observed that the Income Tax Officer (Exemption) has no jurisdiction to complete assessment against a Trust who do not avail any tax exemptions under provisions of the Income Tax Act, 1961.
In the instant case, the assessee-Trust was formed with an object of promoting education among the children from poor society. The Income Tax Officer (Exemptions), Muzzafarpur has completed assessment proceedings against the assessee under section 143(3) of the Income Tax Act. The assessee,impugned the above order before the High Court through a Writ petition by contending that the order was passed without jurisdiction since the assessee is neither registered under section 12 nor enjoys any benefit under section 11 of the Act.It was urged that the order is also inconsistent with the provisions of the CBDT Notification 52/2014 dated 22.10.2014.
The division bench comprising of Chief Justice I.A Ansari and Justice Ravi Ranjan pointed out that as per relevant provisions of the above Notification, only the Commissioner of Income Tax (Exemptions) has been vested with the jurisdiction to make assessment under various provisions of the Income Tax Act including section 11 which relates to income from property held for charitable or religious purpose. Therefore, the ITO, in the instant case, has no jurisdiction to pass the order impugned.
Read the full text of the Judgment below.
In a recent decision, the CESTAT, Ahmedabad bench refused to allow interest on delayed refund of penalty amount already deposited with the Department. The Single Member, while confirming the order of the first appellate authority, observed that no interest is payable on such amount under Section 27A of the Customs Act, 1962.
In the instant case, the appellant-assessee challenged the order of the Commissioner (Appeals) wherein it was held that refunded amount of Rs. 3,68,236/- consisted of penalty of Rs. 2 lakh, and Rs. 1,68,236/- as excess of dues on account of duty or penalty. According to him, no interest can be paid on penalty or on excess dues which are not duty under Section 27A of the Act.
The Tribunal noted the Apex Court decision in Commissioner of Customs (Port) Kolkata vs. Coronation Spinning India, in which the court partly allowed the appeal by holding that interest at the rate of 12% shall be paid to the respondents on the amount of duty and not on fine and penalty.
Based on the above decision, the Single Member observed that “no interest would be payable on delayed refund of penalty of Rs. 2 lakh. However, we find that the Revenue had enchased the bank guarantee in excess of liabilities to the extent of Rs. 1,68,236/-. This amount as mentioned by the Commissioner (Appeals) in the impugned order was in excess of dues on account of duty or penalty. As we have held that no interest would be payable on the delayed refund of penalty of Rs. 2 lakh, the amount of Rs. 1,68,236/- has to be held as in excess of dues on account of duty. If so, then the appellant would be eligible for the interest on the delayed refund of the said amount.”
Read the full text of the order below.
Sharp anomalies in the taxation rates and structure across different industries such as telecom, tobacco, textiles, food processing and tourism , should be addressed to as the country moves in a transition period for implementing the Goods and Services Tax, the ASSOCHAM-KPMG paper has said in a joint paper for the GST Council.
The exhaustive paper stated that taxation structure, say, for, tobacco industry should not be based on some emotive issues and be rational enough to check a huge amount of illicit trade which stays outside the taxation net. It said instead of subjecting the tobacco and tobacco products at a higher than the standard rate, the entire sector should be placed under the standard rate with the focus of bringing exempted items under the GST net to eliminate the rampant illicit trade. As per IMF report high rates of GST / VAT lead to manipulation and fraud.
Similarly, for the telecom sector, the paper cautioned that GST may negatively impact the working capital cost since initial landed price of purchases including imports may increase due to increase in tax rates. Cost of procurement of services may increase to more than 18 per cent from the current rate of 15 per cent, which will be a challenge for the industry, especially if CENVAT credit on passive infrastructure and fuel consumption is continued to be denied.
Likewise, the ASSOCHAM-KPMG also went into the impact of GST on the textile sector and suggested ways to find an ideal situation. It said in case, India opts for higher tax rates under the proposed GST regime, and then in the long-term, it will lose its market share to the developing and highly competitive economies.
Hence, it is recommended that India also implements policies that capitalize on the potential of its textile and apparel industry so that the country has a higher bargaining power in procuring export orders in the international trade vis-à-vis other developing economies. Thus, the Government should make a conscious call to retain lower rate for this industry by introducing a special lower slab of 4 per cent to 6 per cent under the proposed GST regime along with full input tax credit of GST paid on goods and services used in the supply chain.
“As we are in a transition period, several industry sectors are faced with challenges of adapting to new tax regime. While the GST is a path-breaking reform, its implementation should be calibrated in a manner to cause least disturbance to the existing taxation structure. “The Government should unshackle its mind if it really wants to achieve the objectives of GST – Expanding the tax base, reduction in exemptions; mitigating cascading and double taxation, enabling better compliance through lowering of overall tax burden.
The Government should follow the recommendations of eminent economist like Dr. Vijay Kelkar and Dr. Arvind Subramanium, which suggest that moderate rate of taxes will expand the tax base resulting in high collections, which will be the success of GST. Otherwise it will be ‘Old Wine in a New Bottle’. ” Mr. D S Rawat, Secretary General ASSOCHAM said.
Elaborating, the paper said the tobacco industry has been the second largest contributor to Indian excise revenue after the oil and gas sector. The combined tax revenue collected from tobacco industry (Centre and States) was more than Rs 29,000 crore in FY 2014-15. Tobacco products are being cultivated in an area of about 4.68 lakh hectares (0.24 per cent) of total arable land in the country with a production of 800 million kgs13. The tobacco industry provides employment to nearly 4.5 crore people in India comprising farm labourers, farmers, traders, etc. Thus, the sector gives livelihood to a considerable size of the population, particularly rural women, the tribals and labourers who are under stress with no employment alternatives especially when India isexperiencing jobless growth for the last many years.
Under the GST regime, it is proposed to levy both dual taxes as well as higher rate of GST. The endeavor should be to tax the hitherto untaxed/ insignificantly taxed segments of the tobacco industry i.e. tobacco products other than cigarette as the consumption of such products is way higher than that of legal cigarettes. Thus, levy of standard GST rates with excise duty on a wider tax base will yield a higher tax revenue collection than continuing with levy of high rates of taxes on only one segment of the tobacco industry i.e. cigarettes.
For tourism sector, at present, different abatement schemes addressing different situations are available under service tax such as 30 per cent in case of composite package and 60 per cent for dining in a standalone restaurant. This is leading to ambiguity and complexity in determining the value on which service tax is payable. In order to overcome such situation, uniform tax treatment i.e. one standard rate dealing with all the situations should be introduced. The rates should be moderate to remain competitive.
Besides, in current regime, all the taxes cumulatively applicable to restaurants (i.e. VAT, Service Tax and other applicable taxes) increases the value on which tax is payable to more than 100 per cent. Such a situation increases the tax cost substantially. Therefore, a mechanism should be introduced whereby value on which GST would be applied should not increase 100 per cent in any case.
As for the food processing, the industry is taxed at a concessional rate/ zero rate. GST is likely to be based on minimal exemptions regime leading to increase in the tax cost for the food processing industry and inflation. A distinction needs to be made based on the ‘necessity’. Taking from the example of Canada the food products, which are essential for human consumption, should be taxed at zero rate. As food comprises a major part of the WPI, which is nearly 14.3 per cent, an increase in tax on food items will adversely impact WPI leading to higher inflation in the country.
In a recent ruling, the Mumbai bench of the Income Tax Appellate Tribunal held that in order to claim deduction under section 24(2) of the Income Tax Act, 1961, the assessee need not submit the possession certificate from the Government authority. While accepting Possession Certificate from co-operative society as a proof for allowing deduction, the division bench of the Tribunal emphasized that to claim a deduction of interest against a home loan, a taxpayer is not required to submit a completion certificate from the Government. The order will be a great relief for the tax payers in Mumbai.
In the instant case, the assessee, an individual, claimed deduction in respect of interest in respect of house loan u/s. 24(b) of the KVAT Act. The said claim was disallowed by the Assessing Officer on ground that the assessee failed to produce completion certificate from the appropriate authority indicating completion of the flat. On appeal, the Commissioner of Income Tax (Appeals) sustained the assessment order and hence, the appellant preferred a second appeal before the ITAT.
As per section 24(2), the assessee should acquire or complete construction within three years from the end of financial year in which the capital was borrowed. The division bench found that the assessee has furnished certificate from the Cooperative Society indicating the date on which the possession of the flat handed over.
While quashing the order impugned, the Tribunal noted that “the proviso nowhere states that the assessee should furnish completion certificate from the appropriate (Government) authorities. In our view, the evidences furnished by the assessee sufficiently prove that the assessee has taken possession of the flat during the relevant financial year under consideration. Accordingly we are of the view that the assessee is entitled to claim deduction of Rs.1,50,000/- u/s 24(b) of the Act.”
Read the full text of the order below.
While allowing a writ petition filed by the Tamil Nadu Film Exhibitors Association, the division bench of the Madras High Court directed the Tamil Nadu Government to consider revisal of cinema ticket prices.
In the instant case, the petitioners, The Tamil Nadu Film Exhibitors Association has approached the High Court challenging the rejection of their representation by the Principal Secretary, Home (Cinema) Department requesting revisal of cinema ticket prices. The representation was rejected for the reason that there is absence of sufficient material to revise the rates. Through the petition, the petitioners had sought increase in the ticket prices citing various factors, including hike in the Entertainment Tax.
The division bench noted that it was not satisfied with the October 21 last government order. While allowing the petition, the Court said that “We may notice that in the writ petition, the petitioner in paragraphs (7) and (8) has set forth the rationale for seeking increase and since notice was issued in the petition on the last date calling upon counter affidavit to be filed, either the stand of the authorities in this behalf should have been placed on record or the decision placed before us should have dealt with these aspects. Merely to state that nothing has changed in the last ten years begs the question, as it can hardly be disputed that on various accounts costs have increased as set out in paragraphs (7) and (8), including basic aspects like electricity cost, D.A. payable, entertainment tax, etc.”
“We expect a rationale and realistic consideration keeping in mind the parameters set out in paragraphs (7) and (8). Needless to say that if the petitioner is still aggrieved on any aspects, it will be open to the petitioner to assail the fresh consideration, while we set aside the order dated 21.10.2016.”
Accordingly, the order of the Government refusing to increase the ticket prices was set aside.
Read the Judgment here.
Shri Sushil Chandra, a senior IRS Officer, joined as Chairman of the Central Board of Direct Taxes yesterday morning. He had been Member (Investigation) in CBDT since December, 2015.
“During his long and illustrious career in the Income Tax Department, he has handled many prestigious assignments like the Principal Chief Commissioner & Director General of Income Tax at Ahmedabad, Commissioner of Income Tax (Central) & Director of Income Tax (Investigation) at Mumbai among others.”
“His dynamism and forward looking vision is expected to further energise the Income Tax Department in its taxpayer friendly measures and new initiatives in the area of e-governance.”
Mr. Chandra has replaced Rani Singh Nair, who retired from service yesterday.
While upholding the order of ITAT, the division bench of the Delhi High Court held that royalty and technical assistance fee did not form part of a composite transaction and have to be treated as two separate transactions for the purpose of benchmarking and computing arms length price under the provisions of the Income Tax Act, 1961. While giving a partial relief to the appellant-assessee, while computing arm’s length price in respect of transaction relating to ”technical assistance fee, Transactional Net Margin Method can applied.
In the instant case, the assessee is a joint venture company engaged in the business of manufacture and sell Engine Control Units. While filing returns for the relevant assessment year, they reported six international transactions including “Payment of technical assistance fee” to the extent of `38,58,80,000/- .
The assessee, in terms with an agreement with its foreign Associated Enterprise (A.E.) acquired technology required for the purpose of manufacturing ECUs. applied the Transactional Net Margin Method (TNMM) to benchmark its international transactions of import of raw materials, sub-assemblies and components, payment of technical assistance fees, payment of royalty, payment of software and purchase of fixed assets. All these were categorized under one broad head, viz. “Manufacturing of automotive components”. The assessee claimed that its international transactions under the broad head (which included `Payment of technical assistance fee’) were the Arm‟s Length Price (ALP). While rejecting the submissions, the TPO observed that the Transactional Net Margin Method (“TNMM”) had to be applied separately for each international transaction and not collectively as done by the assessee. He, therefore, held all international transactions could not be ALP merely because the overall operating profit was more than the comparables. Consequently, assessees’ claim for “Payment of technical assistance fee” was also rejected. An assessment order was passed against the assessee accordingly.
The said order was challenged by the assessee before the Appellate Tribunal in which the Tribunal dismissed the appeal by holding that royalty and technical assistance fee did not form part of a composite transaction and have to be treated as two separate transactions for the purpose of benchmarking and computing arms length price. According to the Tribunal, Transactional Net Margin Method should not be applied for benchmarking/computing arm’s length price in respect of transaction relating to ”technical assistance fee.”Aggrieved with the above orders, the assessee approached the High Court.
the relevant provisions, i.e Sections 92, 92-C, 92-D and 92-E read together with Rule 10-B and 10-D indicate the approach of the TPO tasked with the obligation to discern, if in a given set of circumstances, the assessee has disclosed international transactions, as well as an ALP. The assessee has to –each year that international transactions are entered into with AE, file transfer pricing reports. These TP reports should be factually correct; and the assessee has to satisfy the queries of the TPO. Section 92-C underlines that the method appropriate to the transaction, amongst the four specified ones, is to be applied.
While rejecting the contentions of the assessee, the Court observed that “The initial burden is always upon the assessee to prove that the international transaction was at Arm‟s Length. Its TP report necessarily had to draw a comparison with other entities (maybe competitors) to show the general degree of profitability of the venture in question. The lower authorities quite correctly turned down the method of explaining the justification of the technical fee- with “proof” of its necessity by relying on profits. Undoubtedly the assessee was obliged to make the payment and that obligation arose from the agreements, a pre-incorporation binding contract. However, that such contractual obligation existed cannot ipso facto be the end of the enquiry. ALP determination in respect of every payment that is part of an international transaction is to be conducted irrespective of such obligation undertaken by the parties. If the transactions are, in the opinion of the TPO, not at arm’s length, the required adjustment has to be made, as provided in the Act, irrespective of the fact that the expenditure is allowable under other provisions of the Act. There can conceivably be various reasons not to subject such payments, such as for instance, if no similar data exists at all; or that sectional data for such payments is absent. Quite possibly, this may also be a general pattern of expenditure which AEs may insist to part with technology; further, similarly, other models of payment- deferred or lump sum, along with royalty or inclusive of it, may be discerned in comparable transactions. However, to say that such a substantial amount had to necessarily be paid and that it was a commercial decision, dictated by need for the technology, in the light of a specific query, it could not be said by the assessee that later profits justified it, or that has essentiality precluded the scrutiny.”
Regarding the second question, the Court accepted the method of TNMM applied by the assessee and opined that it is the most appropriate method in respect of all the international transactions including payment of royalty. “this court concurs with the assessee having accepted the TNMM as the most appropriate, it was not open to the TPO to subject only one element, i.e payment of technical assistance fee, to an entirely different (CUP) method. The adoption of a method as the most appropriate one assures the applicability of one standard or criteria to judge an international transaction by. Each method is a package in itself, as it were, containing the necessary elements that are to be used as filters to judge the soundness of the international transaction in an ALP fixing exercise. If this were to be disturbed, the end result would be distorted and within one ALP determination for a year, two or even five methods can be adopted. This would spell chaos and be detrimental to the interests of both the assessee and the revenue.”
Read the full text of the Judgment below.
